Navigating digital transformation

Digital transformation is continuing at pace, with organisations starting to deploy new transformative technologies like AI and fully embrace cloud and other service based solutions. However, as we become more reliant on our digital service providers, it is increasingly important to ensure that our contracts with them provide sufficient stability and certainty. Suppliers are facing increased costs, both to supply their services and to comply with an increasingly complex web of digital regulation, and they may therefore be looking to fully enforce their contracts where there are financial incentives to do so. Last year’s (now settled) dispute between Broadcom and AT&T is an example of this. So what lessons can we take from this dispute when negotiating new digital arrangements in 2025?

Do you have all the relevant T&Cs? 

VMware and AT&T had executed a number of relevant agreements over the course of decades working together – the claim references an older End User License Agreement (EULA) and a newer Enterprise License Agreement (ELA), along with more than 10 contract amendments. It can be hard to keep track of all changes to live contracts, and a contract audit may be needed to uncover all amendments over time.

Relevant terms may also be incorporated into the contract by reference – e.g., hyperlinks to a website or vendor portal with standard-form terms or policies. AT&T noted that Broadcom were relying on “VMware support policies, which permit the end of availability of the product offerings”. 

It is important for customers to understand what is tucked away in the small print, and to have a clear understanding of the basis on which these terms can be amended (including whether a software vendor has the right to change these unilaterally).

Are your renewal rights clear?

Broadcom appeared to be relying on ambiguity in the AT&T renewal provisions (along with the “End of Availability” provisions discussed below) to deny renewal of the support and maintenance services for the current software products.

In this case, a question arose over whether AT&T had to give notice for three annual renewals in 2023 (at which point AT&T only renewed for one year), or if it could give three consecutive annual renewals on successive years.

To stress-test your renewal rights, customers should put themselves in the shoes of their counterparty – if they were the vendor, where in the terms could they create doubt? Even if it’s not a slam dunk, any ambiguity can give ammunition to a vendor in this position.

How do you resolve inconsistencies?

A large part of Broadcom’s argument in the AT&T case appeared to revolve around an “End of Availability” clause in the (older) EULA document. Broadcom described this clause as “unambiguous” and claims it clearly allowed VMware to pull support for certain products. As such, it argued that VMware was not required to honour the renewal right (which is referenced in a later amendment to the ELA) for support and maintenance services for those products.

While AT&T argued in its original claim that the later renewal right implicitly overrides the older “End of Availability” clause, Broadcom in its reply has pointed to some express provisions which appear to provide for the EULA (and “End of Availability” clause) to take precedence over at least some other contractual documentation.

The case settled, meaning we never got the court’s verdict on this, but it is still a useful reminder to ensure that your suite of contract documents has a clear “order of precedence” clause which clarifies which document or provisions should prevail in the case of conflicts or inconsistencies. These clauses become even more important if your vendor relationship is governed by a significant number of contractual documents (as was the case here).

Can implied terms help you?

AT&T also sought to rely on breach by Broadcom of an implied duty of good faith and fair dealing (under New York law) – the availability of this kind of implied term will vary from jurisdiction to jurisdiction, but may be able to assist if particularly aggressive tactics are being employed.

Perpetual licences may not always be forever

As AT&T (and many other VMware customers) are finding, having a licence which is theoretically “perpetual” is only useful for as long as the vendor is willing to provide support and maintenance services. We have long seen vendors limit support services after a period of time, in part (some would argue) to “encourage” customers to enter into new arrangements.

AT&T clearly foresaw this risk, and tried to mitigate by negotiating extension rights before the sale to Broadcom completed, to give a runway to migrate off the software. As Broadcom said in its reply, “AT&T also could have spent the last several months or even years 'migrating away' from VMware software, which it has admitted it intends to do”.

However, this case shows that even foresight and bargaining power may not fully protect a customer in circumstances where their vendor is looking to change software licensing models. Whatever the contract says, lock-in risk is compounded where the expected cost and complexity of migrating to a rival software provider is significant. It is therefore important for customers to monitor the market and, wherever possible, to understand what alternate services may be available.